Chronological History of Events Related to Vanishing Companies


 

  1. Dec 20, 1996: In the Lok Sabha question no. 4432 tabled by Capt. Jagat Vir Singh Drona, member from Kanpur, asked on our request (Midas Touch Investors Association, Kanpur) "The number of companies which made their public issue in 1992 and onwards and are not traceable?" The minister replied that the information is being collected and shall be submitted in due course.

  2. March 6, 1997: Midas Touch wrote to Prime Minister H. D. Deve Gowda requesting a CBI probe into the matter to bring to book all those promoters and their accomplices, in view of the collective failure of all the regulatory bodies, especially SEBI, to either prevent, detect or nab such companies and their promoters.

  3. March 10, 1998: Midas filed a PIL in Allahabad High Court, Lucknow Bench praying amongst other things: A direction by the HC to institute an inquiry to investigate into the entire matter, to be conducted by CBI or any other independent investigation. Action against all those who had aided and abetted them be taken. Sebi's failure to protect investors' interest -which is their statutory duty- has resulted in ordinary investors losing faith in the capital market, and stopping investing in public issues to the detriment of the national economy.

    HC Directions: While admitting the Writ HC directed Sebi to (A) submit within 15 days a list of vanished cos. Along with their date of public issue, amount etc. (B) to furnish details of steps it had taken to protect the interests of small investors when these facts came to its knowledge (C) the steps it proposes to take to protect the interests of investors (D) to specify whether any WARNING was issued by it to the small investors when facts or information regarding the vanishing companies came to its knowledge and (E) submit its reply to the petition.

  4. March 30, 1998: Lok SABHA: Written reply is given to Capt. Drona's question: 1210 cos. made their public issues during the year 1994-95 out of which 20 are not complying with the listing requirements, he was informed.

  5. April 20, 1998: SEBI REPLY TO THE HC: Sebi pleads that it is unable to comply with the HC's directions as Cos. are not required to file any returns with it. They have to file various returns under the Companies Act with the Registrar of Companies and it is they or the Department of Company Affairs (DCA) who would have the information asked by the court and they have the powers to inspect, investigate or launch prosecution under the companies act. Hence, it requested the court to modify its order and direct DCA to submit the information. In spite of this, Sebi stated that it had made inquiries in this regard when it was brought to its knowledge by the Central Government. Correspondence with the Stock exchanges, DCA, ROC etc. was submitted by it in the court along with its counter affidavit. 

  6. May 25, 1998: Drona writes to Yashwant Sinha, FM: alleging that Sebi has given wrong, misleading and incomplete information to his Lok Sabha question. Annexes list of 31 cos. which had made their public issues in 1994-95 and were not complying with listing requirements and was submitted by Sebi in the HC. Even this list was out of the 120 cos. which made their public issue in 1994-95, leaving about 1100 cos. (out of 1210 which made their IPO in 1994-95) unverified. Obviously the figure of 20 given to the Lok Sabha was wrong and grossly understated. There is a contradiction in Sebi's replies to the High Court and the LS question. Demands an explanation. Asks why information/figures were given for the year 1994-95 only when his question was for the year 1992 onwards? And that, too, after a lapse of fifteen months (In the written reply he was informed by the LS secretariat that the inordinate delay in reply was due to delay in the receipt of reply from Sebi). Drona also said that if the explanation given by Sebi is not satisfactory, he may move a Privileges Motion in the LS for misleading the House. Also asks what was the action taken against the 20 companies -under Securities Contract Regulation Act- identified by Sebi?

  7. August 1998: Midas submits its rejoinder to Sebi reply in the HC: Midas vehemently disputed Sebi contention in its 100-page rejoinder. Stated that it is the responsibility of Sebi under the Sebi Act and Securities Contract Regulation Act (SCRA) to protect investor's interest and regulate securities market of which stock exchanges are an integral part. Sebi has to regulate listed cos. -through stock exchanges- as per the LISTING AGREEMENT as laid down in SCRA. That SEs had failed to monitor compliance of listing agreement by the companies and also failed to take punitive action against the companies, their officials as per SCRA, and also failed to act to protect investors' interest as prescribed under SCRA. Sebi had failed to regulate the stock exchanges and had also failed to take prescribed steps to protect investor's interest upon the failure of SEs to do so. That Sebi participated in the functioning of stock exchanges through its officials and other nominees on the Board of Directors. Midas alleged that instead of launching prosecution proceedings as per section 23 and 24 of SC«A, SEs have been delisting securities of companies for non-compliance of the terms of the listing agreement. This was illegal, as nobody has the powers to do so. This was in the knowledge of Sebi, but still it did not do anything to prevent or rectify it. Documentary evidence was filed by Midas to prove this serious allegation. Conferring powers on ROC or any other authority under any other act does not absolve Sebi or Stock Exchanges to carry out its duty as laid down under SCRA and Sebi Act. Other acts or rules have to be complied by the cos. are in ADDITION to these acts. Parliament debates during consideration of various bills was quoted/annexed by Midas along with GOs, Notifications etc, to clinch its point, which incidentally was novel to all concerned.

  8. August 17, 1998: HC ORDER TO IMPLEAD DCA: R. N. Trivedi, Additional Solicitor General of India appearing on behalf of Sebi pleaded inability of Sebi to do anything in the matter as it was neither its responsibility nor had it been given any powers. He conceded that companies have vanished after raising money through public issue of equity shares, under the Companies Act it was Registrar of Cos (ROC) or DCA which had all the powers to regulate the cos. Midas counsel agreed that DCA be impleaded as an opposite party, which it was not made in the original petition. While making DCA an opposite party the HC also directed it to state in its counter affidavit as to which authority has been assigned the role of monitoring companies subsequent to their public issue so that they cannot run away with the small investors' money leaving them high and dry. 

  9. October 24, 1998: PM directs Finance Ministry action within 3 months against unscrupulous promoters: Announcement made in his address in FICCI meet. Blames such unscrupulous promoters for demise of the primary market.

  10. October 29, 1998: Sebi directs Stock Exchanges to probe IPO funds deployment: As a follow up to PM's directive, Sebi asks Stock Exchanges to ascertain whether end-use of funds raised through Public Issue (from 1992-93 onwards) was made for the purpose stated in the prospectus or not.

  11. October, 1998: DCA replies to High Court's directions: Disowns total responsibility, says it is statutory responsibility of Sebi under the Sebi Act and SC«A: and not that of DCA. 

  12. Midas Touch tells the press that their basic contention - that none of the regulatory body did anything - stands accepted! It's a cruel joke on investors as still nobody is willing to own responsibility either for what has happened or take remedial steps in future.

  13. November 30, 1998: Addl. Solicitor General informs the HC that Central Govt. is seized of the matter: seeks more time: States in the court that DCA and Sebi officials have met and a joint action plan is being formulated by them so that the investors in cos. which have vanished are not cheated.

    On Midas plea that stock exchanges have been illegally DELISTING cos. for non-compliance of the terms of the listing agreement, the court directed that in the modalities which are being worked out by DCA and Sebi, this aspect should also be looked into and the court apprised of the proposed action plan.

  14. December 6, 1998: Drona writes to PM: Seeks fixing of responsibility and removal of D. R. Mehta, Sebi Chairman: Writes that punishing the promoters is not enough. Officials responsible should be held accountable, their assets investigated and appropriate punishment given to them. Gives reference of letter written to Yashwant Sinha, which brought no reply nor were the queries raised therein answered or explained nor any action taken against those vanished cos. and their promoters who were already identified by it. This, he said, proves Sebi's officials connivance with the unscrupulous promoters. Demands that Sebi chairman be sacked, as his continuation in office is detrimental to the securities market and economy of the country.

  15. February, 1999: Midas moves application in HC for attachment of all assets of COs, their promoters and directors which have been identified by Sebi as vanished: so that whatever assets are there, are not further alienated during the investigation which was being carried out by Sebi. Just before this there were regular reports in newspapers that hundreds of vanishing cos. have been identified by various stock exchanges/Sebi, during the investigations they were carrying out.

  16. March 26, 1999: HC order disposing off the Writ PETITION NO. 659 (MB) OF 1998 :

    This was the first hearing held after November 30, 1998. The court disposed of the petition. In its order it stated that the petitioner has approached the court with the limited prayer of being aggrieved by action of certain companies who cheated investors of hundreds of crores of rupees after getting them deposited by investors and being dissatisfied with the action of opposite parties for redressal of grievances of such investors.

    The court expressed its satisfaction with the action taken (by opposite parties) and the principle enunciated therein would certainly be a step towards identifying the defaulting cos. and protecting the interest of investors regarding claim of their money. Earlier on this day Sebi had filed a supplementary affidavit giving details of action, which the Central Government had initiated. A coordination committee was proposed which was to be constituted of DCA and Sebi officials. Secretary of DCA & Chairman of Sebi would be its co-chairman. This was to be assisted by seven Task Forces to be constituted throughout the country. These would identify the cos. which have vanished and suggest appropriate action to the monitoring committee. Sebi and DCA would take action against the cos. under their respective statutes. Action against promoters and directors of such cos. under the penal code may also be initiated.

    Further a group consisting of officials of Ministry of Law, Ministry of Home Affairs, DCA, Sebi, and RBI would be set up by the Ministry of Economic Affairs. This group would suggest legislative changes in various laws for a statutory framework required for better protection of investors' interest.

    The petitioner was not awarded any costs.

  17. April 26, 1999: Midas files REVIEW PETITION against HC order: stating that their main prayer had not been decided by the court, i.e. for an investigation of the entire matter by CBI or any independent agency. That the petition was not regarding refund of deposits as stated in the order but regarding cheating by listed cos. of its shareholders and hence the question of any refund did not arise nor was claimed.

    As Sebi officials are included in the committees to be constituted, it will not be objective and the committee as constituted is neither independent nor non-partisan.

  18. August 23, 1999: Review petition is pending in the HC.

  19. Sebi identifies 80 companies, which have vanished.

  20. November, 1999: Midas Touch submits list of 148 companies, who have misutilised funds or vanished, to Joint Monitoring Committee to ascertain the status of these companies as per Allahabad High Court's Order. 

  21. February 17, 2000: Midas Touch files another writ in Allahabad High Court, Lucknow Bench alleging that the respondents (Ministry of Finance, SEBI and DCA) have failed to carry out the orders given by the court in March, 1999 and they have done nothing to trace, recover the money and protect the interest of shareholders of companies identified by them as vanished. It also challenged the criteria laid down by Sebi, in defining vanishing companies. It alleged that Sebi officials appear to be hand in glove with the promoters. 

    The High Court admitted the writ, notices were issued to the respondents to file their reply and also to indicate what action have been taken by them against 80 Companies identified by them as vanishing. No reply to the main petition has been filed yet by any of the respondent.

  22. May 08, 2000: Written reply given in LOK SABHA to unstarred question no. 6442 of Shri Shri Prakash Jaiswal, by Jethamalani, Union Law Minister.

  23. June 14, 2000: Midas Touch serves notice to Monitoring Committee and all the seven task forces not to go ahead with the proposed DELISTING of vanished companies, as reported in the press. Says it is illegal and beyond their powers and would amount to aiding and abetting white collar crime. 

  24. July 17 & 18, 2000: Virendra Jain, Hon. Secretary of Midas Touch meets the Law Minister and the Finance Minister Shri R. Jethamalani and Shri Yashwant Sinha respectively and demands promulgation of an Ordinance for seizing and attachment of assets of vanishing companies and their promoters and directors, who have been identified by the task forces. 

  25. August 7, 2000: Sebi Chairman informs Shri Jaiswal that they have identified 167 companies so far.

  26. September 08, 2000: "Securities Appellate Tribunal" gives LANDMARK judgment in Vanishing Companies: Rules that Sebi has the PRIME responsibility & POWERS to check cos. accounts, investigate and conduct inquiries and take any measure required for protection of their investors interest.
    This exposes, conclusively, Sebi's double talk and failure to carry out its statutory duties. Midas Touch consistent stand for last four years stands vindicated. 

  27. December 14, 2000: Midas and its President, S. P. Jaiswal, UPCC Chief writes to PM: Demands CBI probe to fix "Accountability" of Sebi, DCA & Stock Exchange officials, if any, in Vanishing cos. Jaiswal writes that this is the biggest scam in the history of stock market, in which small shareholders have lost Rs.10,000 crore. This was not possible without connivance or callousness of the officials. PM's order, given in October 1998, has not been complied as the Committee/Task Forces appointed by the central government includes officials of those organisations which made the scam possible in the first place. Now, they want to sweep it under the carpet without taking any credible action. 

  28. March 15, 2001: According to DCA website 229 companies have been identified by Sebi as Vanishing, so far

  29. May 21, 2001: Task Force of Northern Zone informs Shri Virendra Jain, Hon. Secretary of Midas Touch Investors Association in it's meeting at New Delhi that the investigations are still going on and they have not checked end use of funds raised by companies through public issue and restricted the investigations merely to those companies which fall under the criteria laid down by it.




    February 25, 2002: Midas Touch writes to President, Institute of Chartered Accountants of India, requesting investigation into role of chartered accountants of Vanishing Companies and action against those auditors who were negligent or violated the code of conduct laid down for them. Names of auditors of 229 companies with their addresses were provided by Midas Touch. 

    Midas also stated that financial assistance of Rs.435 crore was given to these vanishing companies by financial institutions, banks and state government owned corporations. The details for the same were provided. It requested for an investigation, by the institute, in the role of statutory auditors of the FIs and banks also. 

    May 16, 2002: Shri Sri Prakash Jaiswal, MP and President of Midas Touch voices his concern in the Lok Sabha, during ZERO HOUR, on the series of scams, during last ten years, in the capital market and absence of holding officials accountable. He holds officials of Sebi and DCA responsible for vanishing companies scam. He demands a probe by CBI to fix accountability of Sebi and DCA officials in this matter. Unless the accountability of officials is fixed, we will not be able to prevent scams in future, Jaiswal said. 

    June 06, 2002: Representative of Midas Touch, in his deposition before the Joint Parliamentary Committee (JPC) investigating the Securities scam, stated that:

    Para 14.28 of the JPC Report: 'Pointing out that investors have lost confidence due to the happenings in the last decade in the stock market, a representative of Midas Touch Investors Association cited the case of vanishing companies and said' :

    "In the year immediately after liberalization, 1.5 crore new investors, small investors as we call them, came into the market between 1992 and 1996 through IPOs. They were duped. At the time Rs. 86,000 crore were raised in four years through public issues and right by issues by four thousand odd companies. Most of these 1.5 crores investors who came in for the first time in the stock market were dupedů Till date 229 companies (only) have been identified by the Government appointed monitoring committee, as having made public issues and disappeared. No one has been arrested and no money has been recovered. There has not been even an action plan as to how to recover that money."

    December 19, 2002:
    JPC presents its report to the Parliament. 

    Para 11.42 of JPC Report: The committee note that the action by SEBI and DCA has enabled the tracing of 160 out of 229 companies which were earlier treated as vanished. There are still 69 companies which remain untraced. The Committee urge that the 'model' FIR which is at drafting stage should be finalized soon and the Central Coordination and Monitoring Committee should ensure that FIR against all the vanishing companies are registered without further loss of time and further ensure that whereabouts of the vanishing companies are ascertained. The Committee also desires that definition of vanishing companies should be made comprehensive. 

    Para 11.43 of JPC Report: Apart from SEBI's action of debarring 87 companies and 336 Directors from accessing the Capital Market, the DCA has launched 79 prosecutions against these companies for non compoundable offences carrying the punishment of imprisonment. What the Committee are seriously concerned is about how the investors may get their money back from the vanishing companies. The Committee urges that SEBI, DCA, Company Law Board and RBI should work seriously torward achieving this objective and take all necessary steps, including attachment of properties of directors of vanishing companies.

    Para 14.53 of JPC Report: The Committee are also given to understand that the prospectus is not vetted by SEBI, with the result that promoters are able to bring public issues at highly manipulative prices. It is therefore imperative that SEBI should formulate suitable guidelines for evaluating the prospectus and in case of dubious or fraudulent promoters, it must stop the public issue. As regards IPOs (Initial Public Offering), two vital issues -pricing and tracking the end use of funds- have been totally neglected by SEBI. While determining pricing is a difficult task, there can be differences of opinion about the price genuinely, but to leave this entirely to the discretion of management based on the recommendations of the merchant bankers, does not serve the interests of small investors. The very fact that during the mid-nineties, in many cases, dishonest management of the companies cheated the poor investors of thousands of crores by bringing out highly overpriced issues and SEBI did not react, on the plea that in the free market regulator need not interfere, is not acceptable to the Committee. Totally free market pricing in a market which is highly imperfect and has a long history of fraud and manipulation is not a workable solution. Fair pricing through the book building rules has also failed to achieve the desired results. It is, therefore, suggested that SEBI should either use industry benchmarks or evolve other suitable criteria for this purpose. SEBI and DCA have been quibbling for the past many years, each one saying that to determine the end use of the funds raised through IPO was not its responsibility, with the result that manipulative promoters have had full liberty in divesting the funds. The Committee is of the view that this responsibility must be discharged by SEBI and the management of defaulting companies should be suitably punished. 

    February 08, 2003: Sri Prakash Jaiswal wrote to Vinod Dhall, Co-Chairman of Joint Coordination & Monitoring Committee and Secretary, DCA regarding various actions which are to be taken in pursuance of JPC recommendations. As none of the regulators has the powers of attachment, he stated, that this lacunae can be overcome expeditiously and suggests that DCA & Sebi support Midas Touch interim prayer, pending in the Allahabad High Court, in which they have prayed for directions by the High Court for attachment of assets of promoters, directors and 229 companies which have identified as vanishing by Sebi/DCA/Task Forces. 

    Jaiswal also demanded an extension of invitation for a meeting - with the Joint Coordination & Monitoring Committee- to a delegation of Midas Touch. 

    May 09, 2003: The Government lays the Action Taken Report, on the JPC Recommendations, in the Parliament. The following were the Action Taken regarding Para 11.42 recommendations relating to vanishing companies:

    ATR on Para 11.42: The Central Coordination Monitoring Committee (CMC) constituted in the context of vanishing companies has been meeting from time to time mainly to monitor the progress made by various Task Forces in the matter of taking penal action against directors of vanishing companies. The CMC is co-chaired by Secretary, Department of Company Affairs and Chairman, SEBI. Prosecutions have been launched against 117 such companies for non-filing of statutory documents. Police complaints have also been filed in 42 cases. Further, prosecutions have been launched against 149 companies for misstatement in prospectus / fraudulently inducing persons to invest money/ false statement made in the offer documents, etc under Sections 62/63/68 and 628 of the Companies Act. The definition of vanishing companies has also been clarified.

    ATR on Para 11.43: As regards vanishing companies, the Co-ordination and Monitoring and Monitoring (Committee) comprising Secretary DCA and Chairman SEBI is the policy making body. Seven Regional Task Forces comprising officials of DCA, SEBI and stock exchanges have been constituted to make verification of compliance at operational level.

    The Co-ordination and Monitoring Committee is examining and exploring various course of action like monitoring the end use of funds, freezing assets of promoters/directors of defaulting companies and disqualification of person in default. Feasibility of introducing the concept of disgorgement of illegal derived benefits, by way of amending the Companies Act, 1956 is also being examined.

    ATR on Para 14.53: No action was reported on the recommendations made in Para 14.53 regarding checking end-use of funds raised through IPO. 

    The following action against NBFCs was reported on Para 11.43 of the recommendations:

    ATR on Para 11.43 (Part): Reserve Bank initiated the following action against the companies which are not traceable at their given address or not responding to the Bank's correspondence after efforts to locate the company have failed. The Bank regarding attachment of properties of directors of vanishing companies, a provision [clause 24(14)] has been made in the Financial Companies Regulation Bill, 2000 (presently under consideration of the Parliamentary Standing Committee on Finance) empowering the Company Law Board (CLB) to issue orders of conditional attachment of the whole or any portion of the property or assets of the NBFC, as specified by the aggrieved depositor. The CLB may order the properties and assets of the person guilty of such disobedience to be attached besides ordering such person to be detained in the civil prison. 

    June 10, 2003: Jaswant Singh, Union Finance Minister responds - vide his letter dated May 26, 2003 - to Jaiswal on the issue raised by him during Zero Hour on May 16, 2003 demanding a CBI probe to fix responsibility of officials of vanishings companies. A factual statement of action reported by Sebi was enclosed. 

    Jaiswal's demand for a probe by CBI to fix accountability of Sebi and DCA officials, and the government's response to it, was not mentioned in this correspondence! 

    June 2003: In response to his letter dated February 08, 2003 addressed to Co-Chairman CMC & Secretary, DCA the Deputy General Manager, Sebi intimates Shri Prakash Jaiswal that "the issue of attachment of assets of directors, promoters of vanishing companies, we advise that the matter is being examined by Central Co-ordination and Monitoring committee."
    The letter further stated that "We have also taken up with DCA, convenor of meetings of CMC and Task forces to extend an invitation to MTIA to these meetings".

    Updated till June, 2003